Discussion of Project Financing– MEETING RECAP 

 August 7th, 2019

MEETING OVERVIEW:

The Focus of this meeting was to look at all of the funding types being discussed for the library project including Measure S Funding, Parking District Funding, Housing Funding, and State Homelessness Funding.  The Subcommittee also wanted to discuss the timing of the Measure S funds and develop a timeline for key actions on the Library Project.

As requested by the subcommittee, there was a third party consultant to help the subcommittee look at funding assumptions of the project and how all of the financing pieces could fit together in a potential project (Standalone Library or Mixed Use Project).

Third Party Consultant Bio: Chuck Depew is a Senior Director for the National Development Council (NDC), a national non-profit that provides economic and community development assistance to local governments.  For more than 30 years NDC has worked with local jurisdictions on multiple housing and economic development efforts.  Chuck provides technical assistance in project finance, development negotiation and housing finance to communities throughout the Northwest, including Utah and Wyoming and Northern California.  In addition, he teaches commercial and housing real estate finance nationwide in NDC’s leading training program.  Prior to his tenure at NDC, Chuck was Deputy Director of the Office of Economic Development for the City of Seattle.   He has over 30 years of experience in public finance, housing, economic and community development.

Mr. Depew has a Bachelor’s degree in Environmental Planning from the University of California, at Santa Cruz; and a Master’s degree in Urban Planning from the University of Washington.

MEETING AGENDA:

4:30-5:00pm: Discussion of RFP Proposals

5:00-5:30pm: Presentations from Staff on funding sources. Q & A with Staff

5:30-6:30pm: Discussion with Chuck Depew about funding assumptions, timelines, constraints, and opportunities.

MEETING DISCUSSION:

Measure S: Library Director Susan Nemitz presented on Measure S funding. She provide the subcommittee with the full ballot language and a project spreadsheet detailing the costs for each brand project.

Subcommittee Question (SQ): What are the timing constraints to the Measure S Funding? Originally, the understanding was that the LFFA would have 8 years from the first bond issue: 5 years to do all the bond issues and 3 years to complete the projects after the last bond issue. With that timeline, the projects would need to be done by Q4 of FY24 (July 1^st 2024). There are other interpretations of the timing constraints that may provide flexibility to that original timeline; however, the 30 year limitation to the bond funding is fixed and there will need to be enough time left in the 30 year limit to pay off the debt of the bond.

SQ: How is the Library doing with all of the other branch projects? Looking at the Project Spreadsheet, which details the Attain Budget from the Master Planning Process (column 2), the initial Measure S allocation amounts (column 3), the second Measure S allocation amounts (column 4), and the current budget (column 5). The current budget numbers in red are rough guestimates, and those numbers are likely to go up. Many of those projects will need to reduce program scope to meet the budget realities– although the libraries are working to bring more money to the projects. Columns 7 & 8 show jurisdictional contributions and Friends of the Library fundraising efforts. 

SQ: What are some of the sizes & costs of other projects? Most of the other branch projects have smaller footprints. The Aptos branch, for example, is 11,000 SF. All of the costs; however, are coming in at over $1,000/SF. Other projects in the Bay Area are at or above that cost – some even in the $1,300-$1,400/SF range.

SQ: When Measure S was being developed, was there any assessment of what it would cost to upgrade the library branches? The Master Plan process looked at each branch and identified three levels of scope from what minimally needed to be done up to what would improve the scope of services. The $82 million total of column B in the Project Spreadsheet, shows the top cost of all three of the Master Plan cost estimate levels. The fund amount requested with Measure S was based on polling that showed that the public would be willing to pay $50/household, which would generate $62 million. The LFFA always knew there would be a gap in all of the projects, and that each jurisdiction would need to figure out how to fill the gap.

SQ: How did we get more money from Measure S than initial estimated? After the first bond issuance, the LFFA board did a study of rental properties and figured out that they could tax more properties with Measure S. The LFFA also chose to waive their reserve and they were able to get lower interest rates, which resulted in Measure S generating more money than originally expected.

SQ: Was it clear that new construction was a possibility with Measure S funds? Looking at the ballot language, it does specify “Construction/Expand Facilities where necessary” (S1) and “Facilities shall include any of the following: New construction, building renovations and service model upgrades…” (S11). All of these materials were available prior to the June 16^th, 2016 election.

SQ: Is there a reason to have the Library on the ground floor? Are there programmatic reasons to have it on the ground floor? Libraries typically do best where retail does best – on sites near or on people’s main travel paths. Libraries pick up a great deal of foot traffic, and we want the library to be in a place to get that traffic. We want the tourists to come in and use the computers to research things to do. We want families to stop in between running errands downtown. The best place for a library is on a busy corner on a busy street, but it would be great to also have outdoor roof space as part of the library. This is also a design question, and you want the library space to be immediately accessible. You don’t want visitors to have to ride an elevator to get to where the library is.

Parking District Funds: Public Works Department Director, Mark Dettle, was available to answer questions on Parking Funding. Note: there will be a larger discussion on Downtown parking at the August 20^th Subcommittee meeting.

SQ: The parking district has been collecting funds to build replacement and additional parking for the future. This use of parking funds and restructuring of parking fees was done through formal public hearings and approvals by City Council. Will spending parking money on non-parking uses need to go through a similar public approval process and what would that public process be? The premise for increasing the rates was always to add parking supply (per direction received from City Council on December 6th, 2016). That was communicated to the public, to the Downtown Commission, and to the City Council. The process has been detailed in this timeline of Council & Commission actions taken on Library, DLAC, and Parking items. A new supply project was incorporated into the language for the parking rate resolution and ordinance approved by Council on the 9/11/18 meeting.

SQ: How much money is currently in the Parking Surplus? The Parking District sets rates to cover its costs, and the district doesn’t typically run a surplus.

SQ: Are there limitations on how parking funds can be used? The Parking District was created for a particular purpose: to address parking needs in the downtown. It is also important to distinguish between parking district funds in general and parking district fund SURPLUS – technically, only parking fund surpluses could be expended for non-parking uses, but only once all of the needs of the district were first addressed. In the past the district has operated at cost and has not had a surplus. Any future surpluses related to the increase in parking rates would likely first require a roll back process going through the steps detailed in the above question. Additionally, if surplus funds were to become available there are additional Parking District needs that would be prioritized over any non-district uses of the surplus funds, like deferred maintenance of City garages and lots and transportation demand management (TDM) programs.

SQ: Why wouldn’t we just rebuild a bigger garage at the location of the Church and Cedar Street two story garage? The challenge with adding additional height at the Cedar/Church Garage location is that the street is used for circulation, so as you go higher up you have to reduce the number of spaces to accommodate the circulation ramps inside of the structure. The site isn’t very efficient for more than a two story parking, so it would become an opportunity site for other uses when the garage has reached the end of its useful life. 

Discussion with Third Party Consultant, Chuck Depew (NDC):

Using the numbers that were produced as part of the facilities master plan and Downtown Library Advisory Committee Processes, Mr. Depew put together a package of materials to more easily look at how all the financing pieces fit together. (Note: These are working documents put together to help the subcommittee better understand the sources and uses of potential projects).

SQ: Are the limitations to funding that the City can access depending on the size of the Housing project and number of included unit? Could a non-profit developer bring tax credits to the table for this project? The City has done projects with tax credits for as small as 21 unit projects, although the preferred units by most affordable housing developers is in the 40-50 unit range. The number of units in a potential mixed use project will be dependent on Council. With the existing downtown zoning, the project is limited by height, but Council could make the decision to increase the allowable height on this site, which would increase the amount of housing the City could include in a project.

SQ: What opportunities are there to bring state homelessness funding into the project?  The State funding goes through the County, who has developed a process for assessing priorities. If the City would like to use homelessness funds for the Library Project, the City would need to submit a proposal to the County. The proposal would need to compete with other proposals received and be responsive to the criteria that has been developed.

SQ: Do we have the ability to use funds from the Affordable Housing Trust Fund in this project? And how much is in that fund? The City has a couple million in the fund now, and we are hoping to maintain a $2M balance in order to take advantage of State funding that will require a local match. Beyond that $2M, there is funding that is already committed to affordable housing projects. Unallocated funding is a couple $100,000s, and could be used towards a mixed use housing project.  

SQ: Has there been any thought around the housing to parking ratio for a mixed use project? Originally the project called for about 600 spaces, and now with the potential for housing, would that shift or change? If Council were to approve greater height limitations, that would allow for more units to be included in a project. Additionally, with some of the parking policy under consideration, the City is looking at eliminating the parking requirement for affordable housing. The City could capitalize on having a parking structure with a shared use of commercial parking during the day and residential parking at night. This could benefit the housing included in a potential mixed use project at Lot 4 and the housing to be developed as part of the metro project.

SQ: We hear a lot about other projects in other cities. Are the cost comparable? You can’t really compare because costs are different everywhere in the country based on how you construct a project. There are so many different factors that impact costs, which are different from one region, state, or community to the next.

Other staff in attendance to answer questions: Martin Bernal, City Manager; Bonnie Lipscomb, Economic Development Director; John Barisone, City Attorney's Office, and Amanda Rotella, Subcommittee Staff.